Selling your business can be a chaotic affair. The perfect business deal requires a lot of work, including arranging your finances and negotiating with potential customers. As a business owner, you are probably familiar with every aspect of your company and its sector, you may be unprepared to handle the sales process. This is where M&A advisory firms come in to assist with mergers and acquisitions. In this article, let’s explore the top reasons to hire an M&A advisor.
M&A advisory: An introduction
M&A advisory is a general term used to represent the job that intermediaries conduct in mergers and acquisitions. The majority of this relates to the advice given to buy and sell sides of businesses, but M&A advisors also carry out market research and help businesses in raising capital.
The M&A advisor is often hired by the company at the outset of the deal-making process. In exchange for a retainer fee and success fee, the company grants them the right to take a more active role in the process.
This fee often represents a percentage of the total transaction amount. A skilled M&A counsel could be very beneficial to a business owner particularly if they have no or little experience with mergers or acquisitions.
The role of M&A advisors
M&A advisors’ main responsibility is to counsel, buy and sell part of businesses on mergers and acquisitions. They will identify potential businesses, initiate communication with other business owners and corporate development officials, offer advice on deal structure and company value, and participate actively in talks.
Additionally, they have an understanding of the current business landscape thanks to their network. Usually, investment banks and M&A advisory firms are sometimes used interchangeably. This is due to the fact that M&A advisors frequently assist businesses with restructuring, capital, and other financial-related challenges in addition to their primary work on transactions.
In this approach, M&A advice firms frequently take advantage of the opportunities presented by their consulting on transactions to offer guidance on other internal financial issues.
Why hire M&A advisors?
They help reduce risks
Giving the task to a company with financial know-how can increase the likelihood that the deal will actually happen. M&A consultants make sure that purchasers are performing the right amount of due diligence to comprehend business dynamics. Advisors excel at pushing buyer due diligence as far in advance as they can, allowing businesses to differentiate offers based on criteria other than value thus reducing risk.
Help save time
Businesses that acquire other businesses frequently have devoted M&A consultants, and they will have a lot of time to work on your deal. The main advantage of working with an M&A advisory firm is that they will guide you through the procedure.
Some companies will handle the majority of the correspondence involved in selling your business. Although you’ll still be required to actively be involved and update your advisor on the particulars of your company, they’ll do a lot of the grunt work, freeing you to focus on running your current operation and considering your next business idea.
They help increase your business’s value
Getting a business appraisal done is the best approach to make sure you get the best value for your company. This will assist you in comprehending the value of your company and the potential selling price. Experienced M&A consultants can also put you in touch with qualified consultants who can explain tax liabilities to you.
They help find better deals
Due to their concentration on establishing connections between company founders and purchasers for these business deals, M&A consultants have a large network. It’s important to find the perfect buyer for your business, thus these relationships are priceless.
Buyers frequently believe they can negotiate a more favorable deal for them as they have typically acquired other businesses in the past. You can identify a business that won’t try to defraud the transaction with the aid of M&A advisors. They can connect you with their network of people you wouldn’t have found on your own by using their experience, and they can access their contacts on your behalf.
They guard your privacy during the sale
When selling your business, confidentiality is a major factor. By delaying disclosure of your identifying information until after potential buyers have been thoroughly screened and signed NDAs, intermediaries can preserve the secrecy of your sale.
A confidentiality breach is more likely to occur when you sell your company on your own. Brokers with experience will know how to approach buyers so that there is less chance of a confidentiality breach.
They’ll inform you of the procedure
M&A advisors will act as your mentors as you go through the whole business sale process. They will let you know what to anticipate and explain everything so you will grasp it simply.
All reputable M&A advisors have a step-by-step process they follow when selling your firm, including how to market it, screen potential purchasers, and handle due diligence and closing.
They will utilize that procedure as a starting point to inform you of every step of the transaction. They will also provide a sounding board for any queries you may have, such as how to maximize the value of your company.
Focus on managing your business
It takes time to sell a business, especially if you attempt to do it independently while still running your company. While you concentrate on running the firm, M&A advisors will take care of all the laborious tasks associated with selling a company.
For example, they will do a business valuation, develop marketing materials, oversee purchasers, and streamline the entire due diligence procedure. If you attempted to complete all of these processes by yourself, it might delay your sale by weeks.
Every step of the way, a broker will keep you updated on the progress of your sale and may contact you with queries or requests for documents. They will invite you to buyer-seller meetings with particularly qualified purchasers later in the process.
You’ll receive advice on deal structure
M&A experts with experience can explain potential deal structures and what you would be accepting if you liked the offer. The details of the contract are quite important, even though the offer price could seem enticing. A deal lawyer and a company broker are essential allies. Each offer can be analyzed by your broker, who will be able to tell you whether the buyer or you will benefit more from it.
Your M&A advisors will also be able to help you come up with original solutions for any challenges that might arise. For instance, if there is a price discrepancy, a promissory note or earn-out could help close the bargaining gap. Either of these structures could be substantially set up in the buyer’s favor if you install them incorrectly.
Investment banks vs M&A firms
The main distinction between investment banks and M&A advising firms is scale. First, multibillion-dollar deals frequently receive advice from renowned investment firms like Goldman Sachs, Morgan Stanley, and JP Morgan.
These businesses cannot effectively serve the medium and lower markets, where agreements can be worth up to $100 million, due to the resources required at the top end of the market. That is where M&A consultancy firms come in and provide their help.
Investment banks also do not have the same restrictions on the advice they can give customers as M&A advisors do. They have internal legal teams, market analysis departments, industry experts, and more, unlike M&A advisors. This is the kind of service that goes beyond what M&A advice firms can do. Legal activity cannot typically be assisted by M&A consultants; instead, an attorney must be retained.
Business brokers and M&A advisors
The most straightforward approach to compare business brokers and M&A advisors is to note that business brokers work on a small, local, or regional scale, and their transactions typically involve lone standalone enterprises.
On the other hand, M&A advisors’ transactions may include complex business mergers or sales spanning numerous locations, and they operate on a broader national and even international scale.
A business broker often works with agreements for up to $1 million to $2 million, whereas M&A advisors handle deals worth several millions of dollars. There are also several other differences including,
- Evaluation Techniques
The skill sets required in enabling the services of business brokers and M&A consultants are distinct due to the breadth and clientele they serve. While M&A advisors provide services related to complex business transactions that may be challenging to evaluate, business brokers focus on businesses that are often straightforward and easy to appraise.
Business brokers can only utilize current sales, location, and profit figures when determining a business’s value. The extensive valuation techniques used by an M&A advisor include the evaluation of intellectual property assets, strategic potential targets, and necessary investment analysis.
- Business Scope
The help of a business broker is rather constrained. A customer will be given a list of available buyers or sellers in the broker’s local market. In order to find new targets that might be a good fit for the company, M&A advisors may need to start completely over from scratch.
Both are compensated differently in terms of how they are paid. Business brokers are paid a commission of the transaction’s value, typically as a percentage. M&A advisors operate on percentage payouts as well, but they also receive compensation for their unique engagement efforts, planned additional services, tax preparation, and legal services. The length of the long-term commitment is the cause of the value difference.
A business broker’s duty is restricted to the point at which a deal is completed, whereas an M&A advisor may work on ongoing engagements for a lengthy period to ensure the venture’s success.
M&A process example
Transaction strategic analysis
The M&A counsel will prepare a list of potential buyers and merger partners, who will then be approached in confidence to talk about the acquisition. As possible partners react, the M&A advisor will meet with them to determine whether the transaction will succeed. M&A advisors will contact potential buyers who are genuinely interested in working together to discuss terms.
Record-keeping and bargaining
M&A advisors will discuss the pro forma membership of the Board of Directors and management. Negotiate employment contracts as necessary and they will check to see if the transaction qualifies as a tax-free restructuring. Depending on the conclusion of the negotiations, they will draft legal documents.
Get the board of directors’ endorsement
Once the terms are met, the transaction is approved at a meeting of the boards of directors of the Client and Merger Partner. On the other hand, A Fairness Opinion is provided by the M&A adviser and the Merger Partner’s advisor. This document attests to the “fairness” of the transaction, meaning that no party is being underpaid or overpaid, and the agreement is reasonable.
Shareholder disclosure and regulatory filings
The required paperwork is prepared, filed, and a shareholder meeting is held by both businesses. M&A advisors will prepare antitrust filings and begin developing integration strategies.
Both businesses will have a shareholder meeting to vote on the merger.
Finally, the deal will be done and the merger will be closed and reorganized.
Tips to find M&A advisors
To decide who you might like to work with, it is crucial to interview each advisor. Inquire if they are fee-based or fee-only. Discover their preferred mode of communication and how frequently they interact with clients. Have they worked with investors with a background similar to yours? Who is their average client? What is their general strategy for investing? By conducting thorough research in advance, you can be sure that the advisor you select is the best fit to guide you through the merger process.
Your business effort may succeed or fail depending on whether you sell, buy, or merge a business. It’s important to conduct a thorough review before choosing an advisor for your needs because choosing between business brokers, investment banks and advisors can be challenging.
By assisting you in identifying opportunities and risks that you might not have otherwise been aware of, a qualified M&A advisor can significantly enhance the value of your company’s M&A process.